BLS and CPI: Measuring Inflation

For the unfamiliar, I’ll open with a quick and rudimentary explanation of the term inflation. Economists define it as a measure of changes in the purchasing power of a dollar. Inflation occurs when prices for goods and services increase across the board; almost everything—from hotdogs at baseball games to boxes of pencils—becomes more expensive. Many complex factors interact to affect inflation, but this post will focus on quantifying it, a tricky matter itself. The Bureau of Labor and Statistics (BLS)—a federal agency—works hard to estimate it with their Consumer Price Index (CPI). Their approach centers on a shopping basket, or a hypothetical one at least. They fill it up with “goods and services people buy for day-to-day living” in order to sample retail prices. Deciding what to put in the basket in the first place requires careful consideration; they have to put together a shopping cart that accurately represents the composition of consumer spending across the United States. And the BLS doesn’t just pull the data off a magical spreadsheet. They sample prices from 87 urban areas, obtaining most data “by personal visits or telephone calls of the Bureau’s trained representatives.” So if you foster burning passions for economics, statistics, and shopping (or at least pretending to shop), you might want to apply for a BLS job. They compare the total cost of the sampled goods and services to shopping baskets of years past to gauge price changes. Mid-January they released a Consumer Price Index report, finding that prices rose just 1.5 percent over 2013.

Planet Money blogger Julia Zhu wrote an article examining price trends for individual components of that shopping basket. Each good had unique price changes throughout the year. Zhu pointed out that gas prices fell by one percent last year, the price of bacon rose 9.6 percent. She goes on to discus some factors behind individual price swings such as the rising popularity of bacon and increased domestic production of oil. Changes in individual prices don’t necessarily reflect inflation; other factors can be at play. Her analysis highlights the individual factors that the BLS tries to iron out of its inflation estimate by including hundreds of goods in its cart.

One commodity that might be of particular interest to student readers: college textbooks. Zhu noted that they rose in price by 5.7 percent. So the next time you complain about the money you sank into books at the beginning of the semester, add something new to that hackneyed conversation. Be sure to point out that book costs are rising significantly above the rate of inflation. You can rest assured that it’s probably not just your imagination; thanks to the hardworking economists and statisticians at BLS you can confidently assert that overall they are becoming more expensive in comparison to other goods.

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